Innovation in America: The Role of Copyrights — Yesterday, the House Judiciary Committee Subcommittee on Courts, Intellectual Property, and the Internet held its latest hearing in its ongoing review of copyright law. The hearing page includes links to the written testimony of each witness as well as video of the hearing (you have to skip ahead to about the 27:30 mark before things actually start). The hearing, which focused on how copyright and creative industries drive innovation, was unfortunately cut short because of an earlier-than-anticipated floor vote.

Literary Property: Copyright’s Constitutional History and Its Meaning for Today [PDF] — An absolutely fantastic and thorough look at the role of Noah Webster and James Madison in establishing copyright law at the very beginnings of the United States. As authors Randolph May and Seth Cooper of the Free State Foundation note in their intro, “Recognizing copyright in the fundamental law of the land conveys its importance as a means of promoting progress in science and useful arts, as well as in commerce. And by recognizing an individual’s rights to the fruits of his or her labor, copyright not only promotes progress and commerce, but also secures a space for individual entrepreneurship free from government control or taking.”

Need for Copyright Protection Hits Home — Prop maker and first time author Eric Hart says, “The book is not a commodity that’s interchangeable with other books out there – nor did it appear magically one day. Its publication was not inevitable. I had to work to get it written. So is it unreasonable to ask that my work is protected and that protection is respected?”

Ad Networks Adopt Notice and Takedown for Ads on Pirate Sites — Bill Rosenblatt takes a look at the cooperative agreement between several large internet advertising agreements announced earlier this month. Discussed are some of the agreement’s major shortcomings — not included are the ad networks causing the most trouble, for example (and, I would add, the agreement ignores completely other major players in the online advertising ecosystem such as ad exchanges). Rosenblatt also offers several recommendations that could make the agreement more effective.

Google’s Impact on Journalism — “The ways in which Google uses its dominance in search to monetize, by corralling and aggregating (without permission) the content of others, is a story that is long in telling. But a common feature, as stated in a White Paper submitted to the FTC in 2011 by The Media Institute, is that Google’s ‘main search page biases Google News results over results of news organizations and other publishers.'”

David Lowery’s uphill fight against commodification — “His particular bugaboos: advertiser-supported piracy, the culture of free content and streaming services that pay a fraction of a penny per song played. In some circles, that makes Lowery a reality-denying crank caught on the wrong side of history. . . But he’s more like an entrepreneur trying to take his goods to market on his own terms, and he’s frustrated by the many forces aligned to prevent that from happening. And he’s not anti-Internet. He’s anti-One-Size-Fits-Allnet.”

In an issue of first impression at the appellate court level, the Fourth Circuit last week held that a clickwrap agreement could satisfy Section 204(a)’s requirement that “[a] transfer of copyright ownership” be “in writing and signed by the owner of the rights conveyed . . . .” 117 U.S.C.A. § 204(a) (West 2013) (“A transfer of copyright ownership, other than by operation of law, is not valid unless an instrument of conveyance, or a note or memorandum of the transfer, is in writing and signed by the owner of the rights conveyed or such owner’s duly authorized agent.”). The opinion is available on the court’s website, and I have uploaded a copy to Scribd. 2For some reason, Scribd sometimes changes the font and makes documents difficult to read. When this happens, I have found that downloading the file and opening it up, rather than reading it from within the Scribd website, fixes the formatting issues.

The court of appeals held that, in light of the E-SIGN Act, 3SeeElectronic Signatures in Global and National Commerce Act, Pub. L. 106-229, 114 Stat. 464; codified at 15 U.S.C. §§ 7001-31. if a website’s terms of use stipulate that ownership of the copyright in a photograph is transferred to the website operator when a website user uploads a photograph to the website, then a website user who clicks “yes” to agree to the terms of use and then uploads a photograph to the website has thereby transferred ownership of the copyright in the photograph to the website operator. The unanimous appellate panel held that the acts of clicking “yes” and uploading the photograph serve to fulfill Section 204(a)’s requirement that the transfer of copyright ownership be memorialized in a signed writing.

Section 204(a)’s Writing Requirement

Section 204(a)’s writing requirement is like a statute of frauds in that it serves “the usual evidentiary and cautionary functions of all statutes of frauds,” but it also performs “the additional purpose of describing the bounds of intangible rights that cannot be seen or felt.” 4Christopher M. Newman, A License Is Not A “Contract Not to Sue”: Disentangling Property and Contract in the Law of Copyright Licenses, 98 Iowa L. Rev. 1101, 1140 n.167 (2013) (internal quotations and citations omitted). The requirement of a signed writing “is not only designed to protect people against false claims of oral agreements,” but it also serves “to make the ownership of property rights in intellectual property clear and definite, so that such property will be readily marketable.” 5Schiller & Schmidt, Inc. v. Nordisco Corp., 969 F.2d 410, 412 (7th Cir. 1992) (discussing Section 101’s requirement of a signed writing in the context of a work made for hire). Section 204(a) ensures that in transactions involving the “transfer of the in rem exclusive rights created by copyright law,” there are “clear chains of title and clear delineation of the open-ended subdivisions of exclusive rights permitted under the 1976 Act.” 6Newman, 98 Iowa L. Rev. at 1140. In other words, the signed writing contemplated by Section 204(a) is “copyright’s equivalent of a deed.” 7Id.

Common sense tells us that agreements should routinely be put in writing. This simple practice prevents misunderstandings by spelling out the terms of a deal in black and white, forces parties to clarify their thinking and consider problems that could potentially arise, and encourages them to take their promises seriously because it’s harder to backtrack on a written contract than on an oral one.

Copyright law dovetails nicely with common sense by requiring that a transfer of copyright ownership be in writing. Section 204 ensures that the creator of a work will not give away his copyright inadvertently and forces a party who wants to use the copyrighted work to negotiate with the creator to determine precisely what rights are being transferred and at what price. Most importantly, section 204 enhances predictability and certainty of copyright ownership—Congress’ paramount goal when it revised the Act in 1976. Rather than look to the courts every time they disagree as to whether a particular use of the work violates their mutual understanding, parties need only look to the writing that sets out their respective rights.

Section 204’s writing requirement is not unduly burdensome; it necessitates neither protracted negotiations nor substantial expense. The rule is really quite simple: If the copyright holder agrees to transfer ownership to another party, that party must get the copyright holder to sign a piece of paper saying so. It doesn’t have to be the Magna Charta; a one-line pro forma statement will do. 8Effects Associates, Inc. v. Cohen, 908 F.2d 555, 557 (9th Cir. 1990) (internal citations and quotations omitted; paragraph break added).

By its terms, Section 204(a) applies to “[a] transfer of copyright ownership.” Section 101, in turn, tells us that such a transfer includes “an assignment, mortgage, exclusive license, or any other conveyance, alienation, or hypothecation of a copyright . . . .” 917 U.S.C.A. § 101 (West 2013) (“A ‘transfer of copyright ownership’ is an assignment, mortgage, exclusive license, or any other conveyance, alienation, or hypothecation of a copyright or of any of the exclusive rights comprised in a copyright, whether or not it is limited in time or place of effect, but not including a nonexclusive license.”). Thus, the writing requirement applies to assignments, exclusive licenses, or any other transfer of copyright ownership such as a mortgage, pledge, or encumbrance.

The question arises whether electronic communications such as emails can fulfill Section 204(a)’s writing requirement. One district court, analyzing a series of emails in which the details of an exclusive license were negotiated, held that there was no signed writing:

Plaintiff has not provided this Court with evidence of a signed writing granting him an exclusive license to market the sound recordings. Instead, Plaintiff argues that the parties’ exchange of e-mails evidences the agreement. The exchange of e-mails, however, does not satisfy the statutory requirement of a written instrument signed by the Defendants. Thus, Defendants could not have transferred ownership of the sound recordings to Plaintiff through an exclusive license. 10Ballas v. Tedesco, 41 F.Supp.2d 531, 541 (D.N.J. 1999); this opinion predates the E-SIGN Act, which went into effect on October 1, 2000.

So how did the Fourth Circuit arrive at its conclusion that merely accepting a website’s terms of use and uploading a photograph to the website can result in the necessary signed writing under Section 204(a)? The key lies in the E-SIGN Act, a federal law which, generally speaking, “mandates that no signature be denied legal effect simply because it is in electronic form.” 113-10 Nimmer on Copyright § 10.03[A][1]. But is assenting to a website’s terms of use wherein a website user agrees to transfer his ownership in a copyright to the website operator really the same thing as signing an agreement to transfer the copyright?

The District Court Proceedings

The underlying dispute in this case is between two competing real estate listing businesses, Metropolitan Regional Information Systems, Inc. (“MRIS”) and American Home Realty Network, Inc. (“AHRN”). Plaintiff MRIS, located in Maryland, maintains a database of property listings to which real estate brokers and agents subscribe. These subscribers upload their listings to the MRIS database, and they agree via acceptance of the website’s terms of use to assign ownership of the copyrights in whatever photographs they upload to MRIS. Defendant AHRN, located in California, operates a nationwide real estate search engine. MRIS alleges that AHRN displayed real estate listings that contained copyrighted photographs from the MRIS database, and it filed suit claiming direct and indirect copyright infringement by AHRN.

In the district court, defendant AHRN moved to dismiss the complaint for failure to state a claim, arguing that plaintiff MRIS did not own the copyrights in the photographs sued upon since the assignments between it and its subscribers were not memorialized in a signed writing as mandated by Section 204(a). Citing the E-SIGN Act, the district court disagreed. 12SeeMetro. Reg’l Info. Sys., Inc. v. Am. Home Realty Network, Inc., 888 F.Supp.2d 691 (D. Md. 2012), modified on clarification, 904 F.Supp.2d 530 (D. Md. 2012).

Notwithstanding any statute, regulation, or other rule of law . . . with respect to any transaction in or affecting interstate or foreign commerce—

(1) a signature, contract, or other record relating to such transaction may not be denied legal effect, validity, or enforceability solely because it is in electronic form; and

(2) a contract relating to such transaction may not be denied legal effect, validity, or enforceability solely because an electronic signature or electronic record was used in its formation. 1315 U.S.C.A. § 7001(a) (West 2013).

“Electronic signature,” in turn, is defined by the Act as “an electronic sound, symbol, or process, attached to or logically associated with a contract or other record and executed or adopted by a person with the intent to sign the record.” 1415 U.S.C.A. § 7006(5) (West 2013).

The assignment of the copyrights in the photographs is governed by the terms of use on the MRIS website, the relevant section of which provides:

All images submitted to the MRIS Service become the exclusive property of Metropolitan Regional Information Systems, Inc. (MRIS). By submitting an image, you hereby irrevocably assign (and agree to assign) to MRIS, free and clear of any restrictions or encumbrances, all of your rights, title and interest in and to the image submitted. This assignment includes, without limitation, all worldwide copyrights in and to the image, and the right to sue for past and future infringement. 15Metro. Reg’l Info. Sys., Inc., 888 F.Supp.2d at 708.

The district court held that the “TOU constitutes credible evidence that MRIS’s users intended to assign their copyrights to MRIS through the electronic submissions of photographs, which would satisfy the relevant provisions of ESIGN.” Having determined that the writing requirement was fulfilled, the district court then granted plaintiff MRIS’s motion for a preliminary injunction, finding that it had a likelihood of success on the merits since it “appears to have obtained these copyrights by assignment when the photographs were uploaded to the MRIS Database by subscribers.” 16Id. at 710.

AHRN subsequently filed a motion to reconsider the preliminary injunction order that had been entered against it, again challenging the validity of the copyright transfers between MRIS’s subscribers and MRIS. Siding with MRIS, the district court reiterated its earlier holding that “the TOU and the subscribers’ electronic submissions of photographs, properly considered an ‘electronic signature’ under E–SIGN, evidence the parties’ full and complete agreement to transfer the copyrights MRIS seeks to enforce in this case.” 17Metro. Reg’l Info. Sys., Inc. v. Am. Home Realty Network, Inc., 904 F.Supp.2d 530, 539 (D. Md. 2012). Thus, the district court found that, even though MRIS’s subscribers only indicated their assent to MRIS’s terms of use insofar as the copyright assignments were concerned, this assent also indicated an “intent to sign the record” under the E-SIGN Act. But is assenting to the terms of a contract the same thing as intending to sign the contract?

The Fourth Circuit Opinion

On appeal, the reasoning of the Fourth Circuit’s opinion tracks that of the district court below. 18SeeMetro. Reg’l Info. Sys., Inc. v. Am. Home Realty Network, Inc., Case No. 12-2102, 2013 WL 3722365 (4th Cir. July 17, 2013). The court begins by noting that Section 204(a)’s writing requirement is different from a statute of frauds in that, “[r]ather than serving an evidentiary function and making otherwise valid agreements unenforceable, under § 204(a) a transfer of copyright is simply not valid without a writing.” 19Id. at *8 (internal citations and quotations omitted). Furthermore, continues the court, “a qualifying writing under Section 204(a) need not contain an elaborate explanation nor any particular magic words, but must simply show an agreement to transfer copyright.” 20Id. (internal citations and quotations omitted).

Before proceeding to the merits of the copyright transfers at issue, the court of appeals cites Second and Ninth Circuit precedent discussing the impropriety of allowing third parties to challenge the validity of a copyright transfer where there is no dispute between the assignor and assignee. Recall that here MRIS’s subscribers assigned their copyrights to MRIS, and the only party challenging those assignments is AHRN—as far as we know, both MRIS and its subscribers believe the transfers to be valid. The court notes that MRIS did not raise the argument that AHRN could not attack its assignments indirectly, and then it proceeds to analyze AHRN’s attack on the merits. One wonders how the court would have reacted had MRIS actually made the argument that it is improper for a third party to challenge the validity of a copyright assignment that is not doubted by either the assignor or assignee.

The court of appeals then goes on to cite the relevant provisions of the E-SIGN Act, notably the definition of “electronic signature” mentioned above which includes “an electronic sound, symbol, or process, attached to or logically associated with a contract or other record and executed or adopted by a person with the intent to sign the record.” The court reasons that since Section 7001(b) of the E-SIGN Act seeks to “limit, alter, or otherwise affect” any statutory “requirement that contracts or other records be written, signed, or in nonelectronic form,” and since “Section 204(a) requires transfers to be ‘written’ and ‘signed,’” it follows “that Congress intended the provisions of the E–Sign Act to ‘limit, alter, or otherwise affect’ Section 204(a).” 21Id. at *9. Moreover, the court continues, copyright transfers do not fall into any of the enumerated exceptions to the E-SIGN Act found in Section 7003.

The appellate panel cites with approval the only other case it can find that applies the E-SIGN Act to Section 204(a), 22SeeVergara Hermosilla v. Coca-Cola Co., Case No. 10-21418, 2011 WL 744098 (S.D. Fla. Feb. 23, 2011), aff’d sub nom., Hermosilla v. Coca-Cola Co., 446 F.App’x 201 (11th Cir. 2011). noting that the district court there “reasoned that allowing the transfer of copyright ownership via e-mail pursuant to the E–Sign Act accorded with, rather than conflicted with,” the purpose of the writing requirement. 23Metro. Reg’l Info. Sys., Inc., 2013 WL 3722365 at *9. Additionally, the court of appeals looks to another context, the Federal Arbitration Act, where the E-SIGN Act has been applied to find a “written provision” to exist in an email or a website’s terms of use. 24See9 U.S.C. § 2. Strangely, the court of appeals does not explain how the cases it cites, which found a written document to exist in the electronic context, apply to the situation which is present here, which mandates a signed and written document. The court of appeals notes that invalidating the copyright transfers here “would thwart the clear congressional intent embodied in the E–Sign Act,” and it thus holds “that an electronic agreement may effect a valid transfer of copyright interests under Section 204 of the Copyright Act.”

Craigslist and Beyond

The issue of whether assent to a website’s terms of use could fulfill Section 204(a)’s writing requirement became relevant in a recent dispute involving Craigslist. Back in July of 2012, Craigslist sued3Taps, PadMapper, and others for copyright infringement. 25SeeCraigslist Inc. v. 3Taps Inc., Complaint, Case No. 12-03816, 2012 WL 3011009 (N.D. Cal. July 20, 2012). Like MRIS, Craigslist claimed to have exclusive rights to user-generated content on account of its terms of use which users accepted via a clickwrap agreement, and it alleged that the defendants were infringing its copyrights by unlawfully scraping, copying, and distributing this copyrighted content. In an order this past April denying in part the defendants’ motion to dismiss, the district court found that Craigslist did in fact have an exclusive license to certain user-generated content—despite there being no signed writing memorializing the transfer.

The district court started its analysis by noting that “the primary issue for the user-created individual posts is whether Craigslist has acquired a sufficient license or ownership interest to assert the copyright.” 26Craigslist Inc. v. 3Taps Inc., Order Granting in Part and Denying in Part Motions to Dismiss, Case No. 12-03816, 2013 WL 1819999, *6 (N.D. Cal. Apr. 30, 2013). The court then states that “[t]ransferring an exclusive license requires a writing,” and it quotes Section 204(a) as providing that “[a] transfer of copyright ownership . . . is not valid unless . . . in writing.” 27Id. at *7 (internal quotations omitted; ellipses in original.). Remarkably, the district court completely ignores the statute’s requirement that the writing be “signed” by the copyright owner. Having read the requirement of a signed writing out of the statute, the court goes on to find that the terms of use agreed to by Craigslist’s users fulfill the writing requirement of Section 204(a) and grant to Craigslist an exclusive license to certain user-generated content. One would hope that this mistake is corrected by the district court down the road.

I bring up the court’s error in Craigslist to highlight what I think to be the error in the district court’s and the Fourth Circuit’s reasoning in construing the terms of use agreed to by MRIS’s subscribers here—the courts are reading out of Section 204(a) the requirement that the writing be “signed.” The E-SIGN Act defines an “electronic signature” to include “an electronic sound, symbol, or process, attached to or logically associated with a contract or other record and executed or adopted by a person with the intent to sign the record.” 2815 U.S.C.A. § 7006(5) (West 2013) (emphasis added). The “parties’ intent is crucial.” 29Pepco Energy Servs., Inc. v. Geiringer, Case No. 07-04809, 2010 WL 318284, *2 (E.D.N.Y. Jan. 21, 2010) (unpublished opinion). Both the district court and the Fourth Circuit have conflated the intent to agree to a website’s terms of use with the intent to indicate that agreement by signing a writing. In the context of agreeing to a website’s terms of use, all signings indicate assent thereto, but not all assents take the form of a signing.

In other words, by clicking “yes” and agreeing to the terms of use, a user has clearly assented to the terms of use, but I find it a stretch to say that the user has intended to sign his name to that effect—not without more. While the result certainly comports with the policy rationale behind Section 204(a)’s writing requirement, it does not fit with the clear import of the statutory text. The simple solution, to me, seems to be for websites to have a box where a user can input his digital signature signaling his assent to the transfer. Another possibility would be to have the terms of use state that by clicking “yes,” the website user is assenting to the terms of use and affixing his electronic signature. 30SeeBerry v. Webloyalty.com, Inc., Case No. 10-01358, 2011 WL 1375665, *7 (S.D. Cal. Apr. 11, 2011), opinion vacated and remanded on other grounds, Case No. 11-55764, 2013 WL 1767718 (9th Cir. Apr. 25, 2013). That would clearly fulfill the requirement of a signed writing under the Copyright Act and the E-SIGN Act. That said, it will be interesting to see how other courts deal with this relatively novel legal issue when presented with it.

17 U.S.C.A. § 204(a) (West 2013) (“A transfer of copyright ownership, other than by operation of law, is not valid unless an instrument of conveyance, or a note or memorandum of the transfer, is in writing and signed by the owner of the rights conveyed or such owner’s duly authorized agent.”).

2.

↑

For some reason, Scribd sometimes changes the font and makes documents difficult to read. When this happens, I have found that downloading the file and opening it up, rather than reading it from within the Scribd website, fixes the formatting issues.

17 U.S.C.A. § 101 (West 2013) (“A ‘transfer of copyright ownership’ is an assignment, mortgage, exclusive license, or any other conveyance, alienation, or hypothecation of a copyright or of any of the exclusive rights comprised in a copyright, whether or not it is limited in time or place of effect, but not including a nonexclusive license.”).

10.

↑

Ballas v. Tedesco, 41 F.Supp.2d 531, 541 (D.N.J. 1999); this opinion predates the E-SIGN Act, which went into effect on October 1, 2000.

Will People On the Internet Ever Stop Stealing Each Other’s Shit? — “As more and more people get used to the idea that we’re all content creators, they’ll care more and more about developing both norms of conduct and technological solutions that help curtail content theft—that allow content to be easily accessed and shared, but with proper attribution and perhaps with a system for generating revenue under certain circumstances.”

The story here involves a DMCA notice sent to Google on behalf of HBO. Included in the notice is one link to a page ostensibly offering a legitimate copy of the open source video program VLC rather than an infringing copy of an HBO work. But a quick look at the notice reveals hundreds of other links that do lead to infringing HBO works — nearly 1,600 in total. Assuming the VLC link accurately describes the files content, that’s an accuracy rate of over 99.9% in the entire notice. Yet Techdirt claims it shows the DMCA agent “isn’t being very careful.” 99.9% accuracy, described by Techdirt as “incredibly sloppy.”

Anyone with half a mind would quickly recognize that no one who was serious would make such a claim. Even those in on the joke would have a hard time maintaining a willful suspension of disbelief.

Chiang on the Property Theory of Copyright’s First Amendment Exemption — Lawrence Slolum highlights law prof Tun-Jen Chiang’s recent article Rehabilitating the Property Theory of Copyright’s First Amendment Exemption. Highly recommended for anyone interested in copyright and free speech issues. “A continuing controversy in copyright law is the exemption of copyright from First Amendment scrutiny. The Supreme Court has justified the exemption, based on the history and the intentions of the Framers, but this explanation is unpersuasive on the historical facts. There is an alternative explanation: copyright is property, and private property is generally exempt from scrutiny under standard First Amendment doctrine.”

White House must strengthen foundation of US innovation — Tennessee Rep. Marsha Blackburn shares some thoughts on copyright. “America has always been a society that rewards good ideas and protects property rights in a free-market capitalist system, not one premised on permission-less innovation where others can free-ride or take someone’s creation without even asking.”

The Power of Repeated Listening — Jeremy Schlosberg discusses how appreciation of good albums grows over repeated listens and how there’s a danger of forgetting this as we become increasingly surrounded by ever more and newer stuff to catch our attention. Great stuff.

Nimmer on Copyright: Celebrating 50 Years — Video from the U.S. Copyright Office event last May, held as part of its Copyright Matters series. David Nimmer discusses the influential treatise, started by his father, the late Melville Nimmer, half a century ago. Nimmer is joined by other copyright luminaries who share insights on the impact of Nimmer on Copyright.

Copyright and the Creative Process — David Newhoff: “While planning the production of goneElvis, I wanted to use my friend Martin Ruby’s cover of ‘Tonight’s the Night,’ famously recorded by The Shirelles, but I was turned down by the publishers when I requested the license for which I could not of course pay. It seems the tendency these days is to view this kind of obstacle as unfair or muting the creative process of the next generation; but this attitude is a mistake, and I’d venture that almost any serious artist will agree. Because I couldn’t have what I thought I wanted in the first place, I ended up with something much better simply because I was forced to go look for it.”

This past March, the Supreme Court considered in Kirtsaeng v. John Wiley & Sons “whether the words ‘lawfully made under this title’ restrict the scope of §109(a)’s ‘first sale’ doctrine geographically.” It ultimately held that they do not — copyright’s first sale doctrine has no geographic limitation. But since then, many have looked beyond Kirtsaeng’s narrow and fact-specific holding to find what they believe to be endorsement of broad, and potentially troubling to creators, expansions to the first sale doctrine.

Digital First Sale

Almost immediately, some speculated that Kirtsaeng would have an impact on “digital first sale”, especially given the fact that a decision in Capitol Records v. ReDigi dealing with that very issue was pending in the Southern District Court of New York (ReDigi operated a service allowing users to buy and sell “used” mp3s). 1Kilpatrick, Townsend & Stockton LLP, “No first-sale doctrine for digital music files“, Lexology (April 8, 2013): “ReDigi had nothing to do with foreign manufacture/sale, and importation of copyrighted goods, but because the Supreme Court’s decision changed the meaning of the first-sale doctrine in the eyes of many, there was speculation that the decision might cause the Southern District to apply a comparably broad reading of the first-sale doctrine”. For example, Joe Wikert, of TOC, wrote the same day that “the Kirtsaeng ruling can only help ReDigi’s case and that’s a good thing for anyone who wants the ability to resell their digital goods,” though he was far from the only one to share this view. 2See also Maria Scheid, “The First Sale Doctrine and the Sale of Digital Goods in Light of Kirtsaeng and ReDigi“, Copyright Corner (April 23, 2013): “the Supreme Court’s decision in Kirtsaeng is particularly important because it reaffirms the basic notion that one has physical ownership of the things that you buy. A court may hold this broad rationale to be equally applicable to digital goods, meaning consumers should be able to resell their digital goods under the protection of the first sale doctrine”; Daniel Gervais, “Digital Kirtsaeng: The first-sale doctrine and online content“, Blouin Beat (April 3, 2013), “ReDigi and others, relying on Kirtsaeng, will say that there is no valid reason to distinguish physical copies from online copies. When someone is done with a copy they should have the right to transfer it to someone else. They have copyright policy (as explained by a majority of the Supreme Court in Kirtsaeng) on their side.” But the court in ReDigi didn’t see anything in Kirtsaeng‘s general remarks about first sale that rendered the provisions at issue ambiguous, and it would hold that ReDigi did not have a valid first sale defense — the first sale doctrine only applies to the distribution of particular, lawfully made, copies of a work, while ReDigi was distributing new, unlawfully made, reproductions of copies.

Sales vs. Licensing

More recently, a software reseller has sought solace in Kirtsaeng‘s first sale language for a different issue in Adobe v. Kornrumpf, currently on appeal to the Ninth Circuit.

Adobe was in the practice of licensing OEM versions of its software — such as Photoshop Elements 8 — to be sold exclusively in conjunction with hardware equipment. According to court records, Kornrumpf acquired copies of these OEM products and resold them separately. Adobe sued, alleging infringement of its exclusive distribution rights since Kornrumpf had not lawfully acquired title to the software.

The court ruled in favor of Adobe, finding that the software was licensed, not sold. The decision was a fairly straightforward application of the test developed by the Ninth Circuit in Vernor v. Autodesk: “[A] software user is a licensee rather than an owner of a copy where the copyright owner (1) specifies that the user is granted a license; (2) significantly restricts the user’s ability to transfer the software; and (3) imposes notable use restrictions.” Since the evidence demonstrated that Adobe clearly met each of these elements, the first sale doctrine did not apply, and Kornrumpf was liable for infringing Adobe’s exclusive distribution right.

But Kornrumpf appealed, with a novel argument: the Supreme Court’s decision in Kirtsaeng limits the scope of Vernor. Specifically, he argues that the Court held that “market division is not a valid aim of copyright”, that it held “courts should not be burdened with enforcing restrictions on the alienability of chattels”, and that it reaffirmed “the venerable common-law aversion to restraints on alienability in the copyright context.”

As in ReDigi, these are essentially policy arguments, as they are not supported by the legal conclusions of Kirtsaeng.

Reaffirming Traditional First Sale Doctrine

In fact, if anything, Kirtsaeng reaffirmed the point that the first sale doctrine is inapplicable when copies have been licensed rather than sold. In responding to the argument that its interpretation of the first sale doctrine would render copyright’s importation provisions superfluous, for example, the Court says that, to the contrary, the provisions “would still forbid importing … copies lawfully made abroad … where … any … licensee, consignee, or bailee sought to send them to the United States.” [Emphasis added.]

What’s more, if there is anything that is venerable, it is copyright law’s tradition of recognizing a distinction between transferring title of a copy of a work through a sale and licensing a work. Going back to what is considered the origin of the first sale doctrine in U.S. copyright law, the 1908 Supreme Court case Bobbs-Merrill v. Straus, one can see this distinction already established. As the Supreme Court said there:

The precise question, therefore, in this case is, does the sole right to vend (named in § 4952) secure to the owner of the copyright the right, after a sale of the book to a purchaser, to restrict future sales of the book at retail, to the right to sell it at a certain price per copy, because of a notice in the book that a sale at a different price will be treated as an infringement, which notice has been brought home to one undertaking to sell for less than the named sum? We do not think the statute can be given such a construction, and it is to be remembered that this is purely a question of statutory construction. There is no claim in this case of contract limitation, nor license agreement controlling the subsequent sales of the book. [Emphasis added].

So it would seem that Kornrumpf, like ReDigi, will have trouble convincing courts to accept its first sale arguments. Nevertheless, these two cases exemplify a recent push, intensified by the Kirtsaeng decision, to inflate the first sale doctrine beyond its due boundaries. No doubt its proponents will raise the issue as Congress reviews the Copyright Act. Why is this troubling?

Put another way, think of it in terms of ordinary goods. For example, you can buy a car, enter into a long-term lease, rent a car for a short period, or take a cab. No one would argue that a framework that only allows outright sale of cars is preferable to this system. The same is true with real property: you can buy a house, lease an apartment, or book a hotel room. It would be an incredibly inefficient system if only the first of these was possible.

As far as digital first sale goes, there are issues with treating digital works like physical goods. There really isn’t such a thing as a “used” digital file — the file is absolutely identical to a “new” file and will remain identical indefinitely. This means “used” digital files are exact substitutes for “new” digital files and would compete directly with them. 4Accord Register of Copyrights, DMCA Section 104 Report, U.S. Copyright Office, pp. 82-83 (August 2001):

Physical copies of works degrade with time and use, making used copies less desirable than new ones. Digital information does not degrade, and can be reproduced perfectly on a recipient’s computer. The “used” copy is just as desirable as (in fact, is indistinguishable from) a new copy of the same work. Time, space, effort and cost no longer act as barriers to the movement of copies, since digital copies can be transmitted nearly instantaneously anywhere in the world with minimal effort and negligible cost. The need to transport physical copies of works, which acts as a natural brake on the effect of resales on the copyright owner’s market, no longer exists in the realm of digital transmissions. The ability of such “used” copies to compete for market share with new copies is thus far greater in the digital world.

Obviously, there are limited issues regarding transferability and alienability that may arise, such as providing mechanisms for passing along digital files to heirs. But forcing digital works to act more like physical objects is clearly not an ideal solution.

The “First Sale License”

Which seems to be the thinking underlying much of the push for expanding first sale in the digital world: we should ignore the beneficial characteristics of the internet and arbitrarily force it to operate like a brick and mortar store. In many ways, first sale is the square peg in the future’s round hole.

Either of these — preference of sales over licensing or digital first sale — would be detrimental to creators and consumers. But the negative effects are multiplied when taken together. Most of today’s popular and innovative services — Spotify, Netflix, Audible, to name just a few — would be unlikely to exist under a system where any transfer of digital works are presumptively sales, and once transmitted they can be resold. Even copyleft systems like Creative Commons and open source software would be in trouble since they are built on copyright licensing.

In there place would be services that would operate under a “first sale license”, 5Analogous to the “DMCA license” that some online service providers claim allows them to build business models around copyrighted works without permission, so long as the works are uploaded by users and the service provider responds to DMCA takedown notices. setting up convoluted systems that would allow them to provide access to songs, movies, ebooks, and other digital works without permission from or payment to creators. Imagine a streaming service that provides on-demand access to the universe of recorded music. Identical to, say, Spotify, but this service is premised on the conceit that a user “buys” a “used” song when it begins playing and then “sells” it back automatically when the song is finished. In this fashion, the service can claim it does not need permission from creators nor does it need to pay any applicable performance royalties. I don’t think such a service is outside the realm of possibilities — and if you don’t think some company will go through the effort to build a Rube Goldberg-like contrivance to take advantage of perceived loopholes in copyright law, well, I’ve got a thousand tiny antennas in Brooklyn to sell you.

Kilpatrick, Townsend & Stockton LLP, “No first-sale doctrine for digital music files“, Lexology (April 8, 2013): “ReDigi had nothing to do with foreign manufacture/sale, and importation of copyrighted goods, but because the Supreme Court’s decision changed the meaning of the first-sale doctrine in the eyes of many, there was speculation that the decision might cause the Southern District to apply a comparably broad reading of the first-sale doctrine”.

2.

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See also Maria Scheid, “The First Sale Doctrine and the Sale of Digital Goods in Light of Kirtsaeng and ReDigi“, Copyright Corner (April 23, 2013): “the Supreme Court’s decision in Kirtsaeng is particularly important because it reaffirms the basic notion that one has physical ownership of the things that you buy. A court may hold this broad rationale to be equally applicable to digital goods, meaning consumers should be able to resell their digital goods under the protection of the first sale doctrine”; Daniel Gervais, “Digital Kirtsaeng: The first-sale doctrine and online content“, Blouin Beat (April 3, 2013), “ReDigi and others, relying on Kirtsaeng, will say that there is no valid reason to distinguish physical copies from online copies. When someone is done with a copy they should have the right to transfer it to someone else. They have copyright policy (as explained by a majority of the Supreme Court in Kirtsaeng) on their side.”

Physical copies of works degrade with time and use, making used copies less desirable than new ones. Digital information does not degrade, and can be reproduced perfectly on a recipient’s computer. The “used” copy is just as desirable as (in fact, is indistinguishable from) a new copy of the same work. Time, space, effort and cost no longer act as barriers to the movement of copies, since digital copies can be transmitted nearly instantaneously anywhere in the world with minimal effort and negligible cost. The need to transport physical copies of works, which acts as a natural brake on the effect of resales on the copyright owner’s market, no longer exists in the realm of digital transmissions. The ability of such “used” copies to compete for market share with new copies is thus far greater in the digital world.

5.

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Analogous to the “DMCA license” that some online service providers claim allows them to build business models around copyrighted works without permission, so long as the works are uploaded by users and the service provider responds to DMCA takedown notices.

About

Copyhype provides news and info on current developments relating to copyright law, the media industries, and the digital economy. It cuts through the hype to bring reasoned discussion aimed at both legal and nonlegal audiences.

Terry Hart is currently Director of Legal Policy at the Copyright Alliance. Any opinions expressed on this site remain his own and not necessarily those of his present or any past employers.